The Big Picture for the Week of October 28, 2012

To contact us Click HERE
iShares strategist Russ Koesterich posted a video that was generally a support piece for iShares' suite of country funds. The topic for the video was seeking to replace income not earned from fixed  income due to low rates with higher dividends from equity exposure. I did not take the video to say that people should meaningfully change their mix of stocks and bonds so much as look for more yield from equities.

Over the course of the past week we've spent a lot of time talking about stock picking and risk tolerances and the video is a good follow on to this week's theme. Long time readers will know I am not a fan of broad based funds (except for economic reasons due to portfolio size) but I am a huge believer in the importance of international investing.

There are quite a few ETF providers that offer country funds, iShares simply happens to have the most funds. Koesterich doesn't really offer any analysis in the video, he merely points out countries where yield can be had and he notes that many countries are generally higher yielding than the US. The yield for some countries is quite high and this is worth investigating if you have not already done so.

The reason I think this video ties in with this week's theme is that the country funds offer access to most markets around the world without forcing individual stocks on someone who would rather not pick stocks. Using country funds over broad based funds allows someone to select some markets they believe are promising while avoid some they believe are not as opposed to owning them all.


There doesn't seem to be as many articles warning about how dangerous country fund are as there used to be, perhaps because the vast majority are actually not insanely reckless to own. During the financial crisis some other countries went down more and some went down less. The ETFs for Greece and Argentina could be thought of as insanely risky but it is difficult to believe that there have been a lot of buyers for those funds who didn't realize they were taking on a lot of risk.

In terms of owning country funds versus individual stocks the work load is probably less but many country funds have very large weightings in two or three stocks and it would be worthwhile to know at least a little about those large holdings. iShares New Zealand (ENZL) has two stocks with 15% weightings, client holding Statoil (STO) has more than a 19% weighting in iShares Norway (ENOR) and so on.

I believe as tools, country funds are democratizing for the easy access provided but they are simply tools to either be used prudently or poorly and there is no doubt that some people have been and will be burned by them for using them incorrectly.